Assume that the Democrats always had a policy of high money growth whereas the Republicans followed a policy of low money growth, and the economy had a standard Phillips curve. Then, if the two parties took regular terms in office:
A)there would be no political business cycle, but inflation would be higher under the Democrats.
B)there would be no political business cycle, but inflation would be higher under the Republicans.
C)unemployment would be lower under the Democrats but inflation would be higher.
D)both unemployment and inflation would be higher under the Democrats.

Question

Quizplus · Accepted Answer

Under a standard Phillips curve, higher money growth typically leads to higher inflation. Therefore, if Democrats always pursued high money growth, inflation would be higher during their terms. However, the Phillips curve suggests a trade-off between inflation and unemployment, not a direct impact on the political business cycle, which is why there would be no political business cycle.

Assume That the Democrats Always Had a Policy of High